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Feedlot Heifer Bulge May Be Nearing End

&ldquo;In several specific cases last week, the replacement heifers were discounted only 2-4% from comparable steers, with some examples of heifers priced higher than steers,&quot; says Derrell Peel, Oklahoma State University Extension livestock marketing specialist. &quot;I expect the overall discount of heifers to steers of the same weight to be smaller on average for the next couple of years if herd expansion is indeed underway.&rdquo;

Overall, Thursday’s delayed Cattle on Feed report will likely be viewed as slightly bullish. Compared to analysts estimates ahead of when the report was originally scheduled, there were fewer cattle on feed October 1, fewer placed in September and more marketings (see below).

“Many analysts, including ourselves, expected heifers to represent a smaller share of the on-feed inventory,” says John Otte, Penton market analyst. “The logic: strong returns to beef and respectable returns to dairy encourage producers to expand both the beef and dairy herds. Apparently, the lure of pricy feeder cattle has enticed cow-calf producers to let feedlots have heifers and stash their cash in the bank.”

Heifers were 36.2% of the on-feed inventory October 1, compared to 35.4% a year earlier and 36.0% two years earlier.

However, the elevated heifer percentage could represent the waning bulge of increased heifer placements that occurred heading into summer.

“Heifers on feed dropped sharply in the last half of 2012 then increased relatively in the first half of 2013,” explains Derrell Peel, Oklahoma State University Extension livestock marketing specialist. “By July of this year, heifers on feed were still down year over year, but down only 3.5% compared to a 9.5% decrease on January 1, 2013. It appeared that more heifers entered feedlots in the first half of the year. This is further indicated by the fact that heifer slaughter has been higher by 2.7% since July after being down 3.7% year- over-year, in the first half of the year. This bulge in heifer slaughter should be nearly finished and decreasing heifer slaughter is expected for the remainder of the year.”

In the meantime, there’s no question that heifer prices are increasing relative to steer peers.

Using auction prices for Oklahoma City (basis 525 lbs. Medium-Large #1) Peel explains heifers were discounted to steers by an average of 11.6% during 2008-2012.

“So far in 2013, the discount has averaged a little larger at 12.8%,” Peel says. “In several specific cases last week, the replacement heifers were discounted only 2-4% from comparable steers, with some examples of heifers priced higher than steers… I expect the overall discount of heifers to steers of the same weight to be smaller on average for the next couple of years if herd expansion is indeed underway.”

Cattle on Feed Highlights

Cattle on feed October 1 (10.1 million head) are 8% less than a year earlier. The pre-report estimate was for a decline of 7.3%.

Placements during September (2.03 million head) were 1% more than the previous year. The pre-release estimate was for 1.4% more.

Marketings in September (1.70 million head) were 6% more than last year. The pre-report was estimate was for marketings of 4.3% more.

Heifers on feed (3.66 million head) is 8% less than a year ago, but they represent a large portion of the on-feed inventory than a year earlier; 36.2% this year versus 35.3% last year.